Shilling hardens, but will remain under pressure

Money Markets

Business are securing future supply of dollars three to six months ahead after the Kenya shilling depreciated over six per cent from the beginning of 2015. PHOTOS | FILE 

In Summary

• A second trader at another commercial bank said there was a likelihood the central bank had sold dollars.
• A third trader said the shilling was expected to remain under pressure due to demand from sectors like energy, and despite tightening liquidity that would otherwise offer the local currency respite.

Kenya's shilling gained on Wednesday on speculation the central bank had been in the market to sell small amounts of dollars, but traders said the local currency may stay under pressure on dollar demand from the energy sector.

Commercial banks quoted the shilling at 105.50/70 to the dollar, compared with Tuesday's close of 105.70/80.

Traders said the shilling had weakened to touch 105.75/85 and also strengthened to 105.20/30 in early trade.

"The shilling is stronger. We opened at 105.70/80 and moved to 105.80/90 and I think from there we have seen slight CBK intervention," a senior trader at one commercial bank said.

SOLD DOLLARS

A second trader at another commercial bank said there was a likelihood the central bank had sold dollars.

"I have a feeling CBK might have intervened. The way the market kept coming down (weakening), most likely it was CBK. Usually when you see the market starting to move from 105.90 to 105.50, that is usually CBK," the trader said.

A third trader said the shilling was expected to remain under pressure due to demand from sectors like energy, and despite tightening liquidity that would otherwise offer the local currency respite.

The weighted average interbank lending rate rose to 25.6724 percent on Tuesday, with high of 27.25 percent, from 25.2328 percent on Monday, signalling there was a severe shortage of liquidity in the domestic money markets.